Commentary on Australian and world events from a socialist and democratic viewpoint

Economics in Two Lessons: Chapter 14

My long-running book-in-progress, Economics in Two Lessons is nearly done. I have a nearly complete manuscript, and am hoping for news from the publisher soon. Thanks to everyone who commented on the first 13 chapters.

Related

Post navigation

3 thoughts on “Economics in Two Lessons: Chapter 14”

Nothing about efficiency wages and micoeconomically induced non- cyclical unemployment. I suggest it’s important to stress why the idea of a perfectly competitive frictionless labour market is incoherent, much more so than in markets for goods and contract services like hairdressing.
Didn’t Beveridge precede the US commitment to full employment?

Hi Professor Quiggin, I’m not sure about your point about a Job Guarantee in the draft of Chapter 14 in your book. You say that JG workers would mostly be producing public goods that people get to enjoy for free, but the JG workers would be spending their wages on market goods sold at market prices. You infer from this that the JG would push against capacity constraints and could only operate in a non-inflationary way if taxation were increased to destroy some of the non-government sector’s purchasing power.

I think you are assuming that the size of the JG workforce (and thus the amount of currency-issuer spending on the JG) is static. But that assumption is not true. As total spending in the economy increases because of the JG workforce expanding and the federal government increasing its net spending into the non-government sector, private firms would respond by increasing their output. Private firms would be very unlikely to respond to the increased demand by raising their prices because they would lose market share to rival firms if they did that. So private firms would create more output and therefore need to hire more workers in response to the JG workers spending their wages. Consequently, many JG workers would leave the JG workforce to take up higher paid jobs in the private sector. Remember that the JG workers would be paid the minimum wage. The size of the JG workforce would automatically contract as the private sector’s demand for labour grows. That means the federal government’s spending on the JG would automatically shrink. Therefore there would be no need for higher taxes to prevent inflation.